Monday, September 21, 2020

Sluggish government spending hinders business growth

By Portia Nkani

Sluggish government spending continues to be the greatest challenge facing businesses, according to the latest Business Expectation Survey of September 2018.

The survey which was released by the end of December last year indicates that unavailability of skilled labour was considered the second most impeding factor to business operations in the second half of 2018, and relates to reported difficulties experienced in recruiting foreign skilled labour.

The challenge of lack of skilled labour is more pronounced for the construction sector, followed by manufacturing.

Lack of skilled labour is also one of the areas that are highlighted among the main challenges to doing business in Botswana by the recent Global Competitiveness reports.

Meanwhile, the exchange rate and the political climate were viewed positively by businesses. An interesting observation from the Survey is that, water and electricity are now viewed as contributing positively to the business climate, reflecting ongoing improvements in the supply of these utilities.

As the country draws nearer to the election year, there is hope that the consumption patterns will pick, even though the government is walking on a tight budget and has to be prudent with spending.

The Minister of Finance and Economic Development, Kenneth Matambo mentioned in his 2018 budget speech, despite the positive outlook in the domestic economy, that the fiscal situation remains tight, with a budget deficit projected for the 2018/2019 financial year hence the need to continue to exercise judicious management of the financial resources.

Matambo will appear again next month for his 2019/20 budget speech delivery which might also be his last, should he not be brought back as Specially Elected legislator to continue to carry on with the Finance Ministry after the October elections.

He is most likely to remain prudent with his spending just like in recent years as the fiscal situation remains tight inspired by the International Monetary Fund’s caution on governments to reduce their expenditures.

The slowdown has not only impacted on the businesses but also on the household consumption patterns as they now have to prioritise their income on basic necessities.

Barclays Botswana Economist, Naledi Madala says that government’s development spending has lagged a target which is indeed a concern.

However the financial year 18/19 budget pencils in higher development and recurrent expenditure, to the extent that government expenditure is expected to breach the 30 percent of Gross Domestic Product (GDP) expenditure spending at 34 percent of GDP, most of which is higher recurrent expenditure. If government manages to achieve its expenditure targets, she said “we could see a reversal in the declining trend. That said it is imperative that development spending be prioritized rather than recurrent expenditure. Additionally with 2019 being an election year, we will most likely see higher government expenditure as well.”

“We could see more spending towards diversification if this call is heeded. The downside risk to our optimism is that fiscal consolidation remains a top government priority, and therefore government could lower development expenditure to meet targets as seen last year which would curb government spending,” adds Madala.

Meanwhile, from his budget delivery Matambo promised that his Ministry will be working on; improving the efficiency of revenue collection, and exploring additional sources of revenues, while implementing measures to contain and promote efficiency in the management of the government expenditure.  He has since implored all those responsible for collecting government revenues as well as those accountable for spending them, to assist his Ministry in its pursuit of the objective of fiscal sustainability.

Going back to the BES overall overview, business conditions have improved since the last survey and are expected to improve further on account of a pick-up in demand for consumer products and sustained growth in global demand for mining output, as reflected in positive expectations about business conditions in 2019. As firms’ inflation expectations seem to be anchored at inflation rates of just below 4 percent, the survey responses support the official projection that inflation will remain within the Bank’s objective range of 3 ÔÇô 6 percent going forward.

RELATED STORIES

Read this week's paper